Africa/Global: Decarbonizing Development?

Editor's Note

Decarbonizing Development, a new report from the World Bank, lays
out a target of "zero carbon future" by the end of the century. The
target year goal is the most conservative of the options laid out
for negotiations in the climate summit in Paris in December. Such a
long transition can rightly be criticized by climate activists and
scientists as falling far short, as can the Bank's own record of continued
support for fossil fuels implicitly faulted in this report.

But the report is also another indicator of the growing consensus
that the transition away from fossil fuels is both imperative and
inevitable, and that it must be managed so as to support wider
inclusion and development rather than being seen as contradicting
development. Notably, the report strongly advocates replacing
fossil-fuel subsidies by direct cash payments which benefit the
poor, citing the precedent of Iran's energy reform introducing a
quasi-universal $45/month per capita cash payment.

Also notable is the report's warning that current investments in new
fossil-fuel power could lock in unsustainable future emissions. The
report advises that "all countries should work to avoid creating
carbon-intensive lock-ins that will be costly to reverse later and
to capture the large economic and health co-benefits from a cleaner
and more efficient economic system."

* Just published May 17 - Guardian investigative report illustrating
just such a carbon-intensive lock-in: "Shell accused of strategy
risking catastrophic climate change." Internal Shell document
reveals that company is planning for presumption of catastrophic
rise to 4C. Guardian continues campaign for Gates Foundation and
Welcome Trust to divest. Read article at http://tinyurl.com/ltwjhss

In addition to regular news sources such as AllAfrica.com and other
sources appearing in Google News, another source with up-to-date
information, principally in French, ishttps://bujanews.wordpress.com/

++++++++++++++++++++++end editor's note+++++++++++++++++

New Report Shows How to Decarbonize Development with 3 Steps to a
Zero Carbon Future

Washington, May 11, 2015-- A new World Bank Group report lays out
three steps countries can follow to reduce net emissions of
greenhouse gases to zero and stabilize climate change: Plan for the
end goal, not just the short-term; get prices right as part of a
broad policy package that triggers changes in investment and
behavior; and smooth the transition for those most affected.

The actions necessary to make the transition to zero net emissions
are affordable if governments start today, the report Decarbonizing
Development: Three Steps to a Zero Carbon Future says, but it warns
that the costs will grow if action is delayed. Waiting until 2030
would increase the global cost by 50 percent.

"As science has indicated, the global economy needs to be overhauled
to reach zero net emissions before the end of this century so we at
the World Bank Group are increasing our focus on the policy options
governments and businesses have now. Our role is to help our
country clients and others to make the shift to low-emissions
development. Choices made today can lock in emissions trajectories
for years to come and leave communities vulnerable to climate
impacts. We will help support robust decisions when we can," said
World Bank Group Vice President and Special Envoy for Climate
Change Rachel Kyte.

Planning for the future

The report is designed to help policymakers in both developed and
developing countries set priorities as they reduce greenhouse gas
emissions on a path to zero net global emissions. That starts with
planning for the future by investing today in the research and
technology that will be needed decades from now and by avoiding
decisions that can lock in high-carbon growth patterns and
infrastructure investments that will become obsolete in a low-
carbon future.

The report describes how countries can reach zero net emissions by
shifting from fossil fuels to clean energy as their source of
electricity, and then scaling up electricity use. Improving energy
efficiency is important to help lower demand, and keeping natural
carbon sinks healthy through good forest and land management helps
offset remaining emissions by absorbing and storing carbon.

"The goal is to reach zero emission in 2100, not to reduce emissions
at the margin in the next decades. It implies a very different set
of measures, including structural and spatial transformations of
our economies," said World Bank Group Chief Economist for Climate
Change and lead author Marianne Fay.

Getting prices right as part of a broad policy package

A broad policy package, including a price on carbon, is also
necessary to provide incentives to ensure low- carbon growth plans
are implemented and projects financed. The report explains how
carbon pricing through a carbon tax or carbon market is an efficient
way to raise revenue while encouraging lower emissions, and why it
can be easier to administer and harder to evade than other taxes.
"In the United Kingdom, tax evasion is about 9 percent for the
corporate tax, and 17 percent for income taxes. For the excise tax
on diesel, similar to a carbon tax, evasion is only 2%", said Fay.
Pricing carbon is a valid option for countries at all income levels,
provided that the revenue raised is used to finance development and
eradicate poverty.

But a larger policy package is needed to accompany carbon pricing or
to pave the way to its introduction. The report discusses
complementary policies that can encourage investment needed to get
to zero net emissions such as performance standards for energy
efficiency, rebates on fuel-efficient vehicles, reduced tariffs on
low-carbon technologies, and renewable portfolio standards that
require electricity providers to get a percentage of their power
from renewable sources.

Smooth the transition

The transition to low-carbon growth will have economic impacts. The
report describes how governments can take steps to smooth the
transition for those most affected and increase support for changes
by protecting poor households from the impacts of higher prices and
helping businesses reinvent themselves for a cleaner world.

"Data in 22 developing countries show that if fossil fuels subsidies
were replaced by universal cash transfers, the bottom 60 percent
would benefit from the reform," said Stephane Hallegatte, Senior
Economist Climate Change and a lead author of the report.

Removing fossil fuel subsidies, which primarily benefit the wealthy,
and implementing carbon taxes or cap- and-trade systems are two ways
to generate revenue needed for education, health and infrastructure,
and reduce carbon emissions at the same time.

Decarbonizing Development: Three Steps to a Zero-Carbon Future

Overview

Stabilizing climate change entails reducing net emissions of carbon
dioxide (CO 2) to zero. CO 2 stays in the atmosphere for hundreds,
if not thousands, of years. As long as we emit more than nature can
absorb in its sinks (oceans, forests, and other vegetation),
concentrations of CO 2 in the atmosphere will keep rising, and the
climate will keep warming. And the decisions we make now will
determine the planet's climate for centuries.

The latest science also tells us that we need to reach zero net
emissions by 2100 to stabilize climate change around the 2 deg C
target above preindustrial temperatures that has been agreed by
governments as the maximum acceptable amount of warming. Relaxing
the target to 3 deg C would make little difference in the policies
needed, although a 2 deg C target would require more aggressive,
earlier action.

But can we envisage a world in which economic activities have been
made completely carbon neutral by the end of the century? Here, we
should emphasize that carbon neutrality or decarbonization does not
imply no emissions whatsoever. Positive emissions in some sectors
and some countries can be offset, to some extent, through natural
carbon sinks and negative emissions in other sectors and countries.
So decarbonization means zero net emissions of CO2 --as well as
the stabilization of emissions of short-lived greenhouse gases such
as methane that dissipate in the atmosphere in days, weeks, or
decades.

The latest report of the Intergovernmental Panel on Climate Change
(IPCC) -- which presents the consensus views of 830 scientists,
engineers, and economists from more than 80 countries and was
formally endorsed by the governments of 194 countries -- identified
many possible pathways to reach carbon neutrality by the end of the
century. All require acting on four fronts: (a) decarbonization of
electricity; (b) massive electrification (using that clean
electricity) and, where that is not possible, a switch to
lower-carbon fuels; (c) greater efficiency and less waste in all sectors;
and (d) improved carbon sinks (such as forests, vegetation, and
soil).

In practical terms, what does this mean for countries, especially
developing countries that are already struggling to reduce poverty
and achieve prosperity? Many are unable to keep up with the
investments to satisfy the basic needs of their citizens, let alone
the efficient cities, roads, housing, schools, and health systems
they aspire to create. At the same time, the fact that much of
their infrastructure is yet to be built means opportunities exist
to act early and gain efficiency. Thus, the pursuit of a low-
carbon transition must be integrated into the overall development
agenda: the goal is not just to decarbonize, but to decarbonize
development.

The aim of this report is to take this lofty goal of zero emissions
by 2100 and examine what it means in terms of today's policy making
for development. It does not discuss whether or why to stabilize
climate change, or at which level we should do so. Our starting
point is the 2 deg C goal set by the international community. We
begin by examining how planning can help lay the foundation for
both a stable climate and a good development path. Next, we explore
how countries can create the right enabling environment so that the
needed technology, infrastructure, and financing are available.
Finally, we discuss how countries can carefully manage the
transition, given the vital role that the political economy will
play.

The message of this report is that to decarbonize development, and
to do so by 2100, three broad principles must guide countries' low-
carbon efforts:

Plan ahead with an eye on the end goal.

The appropriate way to achieve a given reduction in emissions by,
say, 2030 depends on whether that is the final target or a step
along the way to zero net emissions. If the latter, early action
will need to be a mix of cheap, quick fixes and costlier long-term
measures to promote technology development, investment in long-
lived infrastructure, and changes in how cities are built. So every
country needs to define a long-term target-- say for 2050--that is
consistent with decarbonization and to build short-term, sector-
specific plans that contribute to that target and are adapted to
the country's wealth, endowments, and capacity. The good news is
that many options with high potential offer immediate local co-
benefits, especially in low-income countries, so that early action
need not represent a trade-off with short-term development goals.

Go beyond prices with a policy package that triggers changes in
investment patterns, technologies, and behaviors.

Carbon pricing is necessary for an efficient transition toward
decarbonization. It is also an efficient way to raise revenue,
which can be used to support poverty reduction and development or
to reduce other taxes. And a carbon tax can be designed to be
administratively simple yet harder to evade than taxes on income or
capital. But carbon pricing alone cannot solve the climate change
problem, given the many market failures and behavioral biases that
distort economies. Policy makers also need to adopt measures such
as targeted investment subsidies, performance standards and
mandates, or communication campaigns that trigger the required
changes in investment patterns, behaviors, and technologies--and if
carbon pricing is temporarily impossible, to use those measures as
a substitute.

Mind the political economy and smooth the transition for those who
stand to be most affected.

Reforms live or die on the basis of how well the political economy
is managed: a climate policy package must be attractive to a
majority of voters and avoid impacts that appear unfair or that are
concentrated in a region, sector, or community. Thus, reforms have
to smooth the transition for those who stand to be affected--by not
only protecting vulnerable people but also avoiding concentrated
losses and sometimes compensating powerful lobbies. Fortunately,
getting rid of environmentally harmful subsidies and pricing carbon
provide additional resources with which to improve equity, to
protect those affected, and, when needed, to appease opponents.

Of course, these are broad principles that every country will need
to interpret in light of its own needs, institutions, and
aspirations. Even so, a few generalizations can be made. Low-income
countries, given their extremely low emissions levels, should focus
on options that are consistent with immediate poverty alleviation
and that do not stand in the way of short-term growth, including
the adaptation and diffusion of technologies developed elsewhere.
Richer countries can afford to implement more expensive measures
and take the lead on developing frontier technologies such as
carbon capture and storage and subsidizing their deployment so that
the technologies improve and their cost decreases.

But all countries should work to avoid creating carbon-intensive
lock-ins that will be costly to reverse later and to capture the
large economic and health co-benefits from a cleaner and more
efficient economic system. Further, income is not the only factor
that differentiates countries. Countries that are rapidly
urbanizing have a crucial window of opportunity to create cities
that are energy efficient and easy to serve with public transit.
Countries with large forests can achieve a lot by focusing on
reducing irreversible deforestation. More generally, countries
differ by the endowment of natural resources--for instance, their
potential for hydropower or solar energy--and will therefore
implement very different strategies. But, although countries will
follow different pathways, all countries have a role to play.

Managing the Transition: Protecting Poor People and Avoiding the
Potential Pitfalls of Reforms

The goal of the transition is to decarbonize development rather than
just reduce emissions. Hence, reforms must contribute to poverty
alleviation and shared p rosperity. And as with any major
transition, the political economy of reforms must be managed with
allowances made to those with a stake in the status quo and with
good communication of the goals and benefits of the reform.

Ensuring Poor People Benefit

Fossil-fuel subsidies and artificially low energy prices are not
efficient ways to boost competitiveness or help poor people. Such
measures drain fiscal coffers, hurt the environment, slow the
deployment of greener technologies, and chiefly benefit nonpoor
people. A review of fossil-fuel subsidies in 20 countries shows
that the poorest 20 percent of the population receive on average
less than 8 percent of the benefits, whereas the richest 20 percent
capture some 43 percent (Arze del Granado, Coady, and Gillingham
2012).

But even if removing fossil-fuel subsidies and adopting carbon
pricing improve equity, those measures will also increase the price
of energy and other goods (such as food), thereby reducing poor
households' purchasing power. Further, higher prices for modern
energy could lock poor people into using solid fuels for cooking,
with impacts on health, gender balance, and children's access to
education (women and children spend a disproportionate amount of
time collecting traditional fuels and spend more time exposed to
indoor pollution). Also, industrialization has been a powerful
force for poverty reduction in many countries and could
theoretically be slowed by higher energy prices.

It is therefore critical to use the savings or new proceeds
generated by climate policies to compensate poor people, promote
poverty reduction, and boost safety nets. One way to do that is by
recycling revenue through tax cuts and increasing transfers to the
population--as British Columbia did to ensure that its reforms were
progressive (Beck et al. 2014). Similarly, the Islamic Republic of
Iran implemented a quasi-universal cash transfer (about $45 per
month per capita) as part of its energy reforms (IMF 2013). A
modeling exercise carried out using data from developing countries
shows that taking $100 away from fossil-fuel subsidies and
redistributing the money equally throughout the population would on
average transfer $13 to the bottom quintile and take away $23 from
the top quintile (figure O.5).

Another way to ensure that poor people benefit is with in-kind
measures. Ghana's 2005 fossil-fuel subsidy reform increased the
price of transport fuels by 50 percent but also included an
expansion of primary health care and electrification in poor and
rural areas, the large-scale distribution of efficient lightbulbs,
public transport improvements, and the elimination of school fees
at government-run primary and secondary schools (IMF 2013;
Vagliasindi 2012).

Redistribution has also been shown to significantly increase the
odds of reforms succeeding. A review of reforms in the Middle East
and North Africa classifies all reforms with cash and in-kind
transfers as successful, as opposed to only 17 percent of the cases
without (IMF 2013; Sdralevich, Sab, and Zouhar 2014).

...

Managing the Political Economy of Reform without Getting Captured by
Vested Interests

Worries about large-scale deindustrialization and job losses--which
play a big role in debates on carbon tax and cap-and-trade
systems--may be overblown. Evidence from developed countries
suggests that there are no discernible impacts on productivity and
jobs from introducing cost-increasing environmental regulations or
pricing schemes.

Indeed, pollution abatement costs represent only a small fraction of
production costs for most industries, and factors such as the
availability of capital and skilled labor or proximity to markets
are much more important determinants of firm location and
competitiveness (Copeland 2012). A detailed analysis of the
European iron and steel industry shows that the impact of the
European Union's emissions-trading scheme remains limited, with
impacts smaller than interannual exchange rate variations (Demailly
and Quirion 2008). In contrast, resources raised by carbon-pricing
schemes can contribute to attracting more jobs and investments by
improving more important factors, such as education and workers'
skills or infrastructure, and by reducing capital and labor taxes
that are more distortive than carbon pricing.

However, what is valid for relatively modest environmental
regulations may not be true for stricter policies. A low-carbon
transition entails a shift away from carbon- intensive sectors and
technologies toward low-carbon ones. In the short to medium term,
that transition means reallocating capital, labor, and rents. It
cannot be done without negative impacts on some asset owners and
workers. Further, those impacts may be spatially concentrated in
regions that specialize in energy-intensive or extractive
industries, such as steel production or coal mining.

A key question is the extent to which those who stand to be most
affected need to be compensated or protected. The answer can be
based on ethical considerations: poor people are vulnerable to
those changes and have a lower capacity to adjust to price changes;
and some (poor or non-poor) stand to lose their investments and
livelihoods because the rules of the game have changed, not because
they were willfully doing the wrong thing. But there is also a
pragmatic argument: compensation may be needed for political
economy reasons. Climate policy gains tend to be diffuse across
economic actors, and the benefits of climate change stabilization
are intangible avoided losses, which take place mostly in the
future. Those characteristics do not help create a vocal group of
policy supporters (Olson 1977). In contrast, policy costs tend to
be visible, immediate, and concentrated over a few industries,
which may have a de facto ability to veto the reform.

A number of steps can help smooth the transition and avoid
concentrating losses (either spatially or within a particular
interest group). One option is to start the reforms with
regulations such as performance standards that apply only to new
capital. This approach is less efficient from an economic point of
view than immediately introducing a carbon price. But it has the
advantage of putting the economy on the right path without hurting
owners of existing capital (hence, reducing resistance). Further,
it creates a constituency for change, as business owners are less
likely to lobby for repeal of a carbon law or against the
subsequent introduction of a carbon tax if they have already
invested in the new, cleaner capital. ...

Another solution is to adopt compensation schemes. Strong social
protection systems play the role of horizontal compensation
systems, since they protect households and individuals against
economic shocks. Specific instruments can also be implemented, as
in Japan's support for traditional industries (such as textiles and
shipbuilding) in the 1960s and 1970s. ... The U.S. Trade Adjustment
Assistance Program also provided reemployment services to displaced
workers and financial assistance to manufacturers and service firms
hurt by import competition.

...

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